STOCK MARKET 2

Exercise 1: An investor believes that Telecom's stock price will increase in the near future. The
current market price is $50, the investor has $5,000 of his own to invest and borrows an
additional $5,000 from a securities company at an interest rate of 8% per annum and invests
$10,000 in the stock.
Request:
a. What will be the investor's rate of return if Telecom's stock price rises by 10% during
next year (ignore dividend payments)?
b. How far does the price of Telecom stock have to fall for the investor to receive a margin
call if the maintenance margin ratio is 30%? Suppose the price fall happens immediately.

Exercise 2: Suppose that Intel stock currently is selling at $40 per share. An investor buys 500
shares using $15,000 of his own money, borrowing the remainder of the purchase price from a
securities company at an interest rate of 8% per annum.
Request:
a. What is the percentage increase in the net worth of the investor if the price of Intel
immediately changes to (1) $44; (2) $40; (3) $36? What is the relationship between the
percentage change in the net worth of the investor and the percentage change in the stock
price?
b. If the maintenance margin ratio is 25%, how low can Intel's stock price fall before the
investor receives a margin call?
c. How would your answer to (b) if the initial investor only has $10,000 of his own.
d. What is the investor's rate of return if Intel’s stock price after 1 year is: (1) $44; (2) $40;
(3) $36? What is the relationship between the percentage change in the investor's rate of
return and the percentage change in the stock price. Suppose that Intel pays no dividends.

Exercise 3: An investor borrowed $20,000 to buy Disney stock on margin, the current price of
this stock is $40, the initial margin ratio is 50%, the maintenance margin ratio is 35%. Two days
later, the stock price dropped to $35.
Request:
a. Will the investor receive a margin call?
b. How low can the price of Disney stock fall before the investor receives a margin call?

Exercise 4: An investor believes that IBM stock price will increase in the future. The current
market price is $100, the investor has $10,000 of his own to invest and borrows an additional
$10,000 from a securities company at an interest rate of 9% per annum (total IBM purchase
amount is $20,000). Ignore dividend payments.
Request:
a. Calculate the investor's rate of return in case of: (1) the stock price increases by 30% in
the share price; (2) the stock price decreases by 30%; and (3) the stock price remains
unchanged.
 b. How would your answer to (b) if the initial investor only has $5,000 of his own.

Exercise 5: ABC Securities Company applies an initial margin ratio of 60%, a maintenance
margin ratio of 35% for shares of XYZ, a transaction fee of 0.2%, and an interest rate is
0.06%/day. The current market price is VND 40,000. An investor participates in a margin
transaction of XYZ stock with the amount of VND 1.2 billion.
Request:
a. How low can the price of XYZ stock fall before the investor receives a margin call?
b. Suppose that the investor borrows for 30 days and XYZ’s stock price at that time is VND
44,000. How much did ABC earn from the above transaction?
c. With the above assumption, what is profit and rate of return of the investor?

Exercise 6: ABC Securities Company applies an initial margin ratio of 60%, a maintenance
margin ratio of 35% for shares of XYZ, a transaction fee of 0.2%, and an interest rate is
0.06%/day. The current market price is VND 40,000. An investor participates in a margin
transaction of XYZ stock with the amount of VND 1.2 billion (this amount does not include
payment of transaction fees and interest).
Request:
a. How low can the price of XYZ stock fall before the investor receives a margin call?
b. Suppose that the investor borrows for 30 days and XYZ’s stock price at that time is VND
44,000. How much did ABC earn from the above transaction?
c. With the above assumption, what is profit and rate of return of the investor?

Exercise 7: An investor sells short 100 Telecom shares at the current market price of $50 per
share.
Request:
a. How much in cash or securities must the investor put into his account if the initial margin
ratio is 50% of the value of the short position?
b. How much the stock price will increase before the investor receives a margin call if the
maintenance margin ratio is 30% of the value of the short position?

Exercise 8: An investor sells short 500 shares of Intel, currently selling for $40 per share, and
has $15,000 to establish his margin account.
Request:
a. What will be the investor's rate of return if Intel’s stock price is: (1) $44; (2) $40; and (3)
$36. Ignore interest from $15,000 in margin and dividends.
b. If the maintenance margin ratio is 25%, then what will be Intel’s stock price before the
investor receives a margin call?
c. Redo (a) and (b) in case Intel pays a year-end dividend of $1 per share. The price in (a) is
the price after the dividend has been paid (ex-dividend).
Exercise 9: Information on the contribution of each depository member up to the time of using
settlement support fund is as follows: (unit: million VND)
Member A B C D E F
Contribution 240 350 150 400 300 500
As a result of offsetting on 6/8/N, A must pay 600 million, on A's account only has 100 million,
A uses settlement support fund within 7 days.
Requirement:
1. Calculate the amount to be deducted from other depository members.
2. Calculate interest and penalties A has to pay each member in the first 5 days and the next 2
days.
Said: Interest rate on using fund: 0.1%/day for the first 5 days; 0.15%/day for the next 2 days
(from the 6th day)

Exercise 10: Information on the contribution of each depository member up to the time of using
settlement support fund is as follows: (unit: million VND)
Member A B C D E F
Contribution 240 350 150 400 300 500
As a result of clearing on 6/8/N, D must pay 900 million, on D's account only has 500 million, D
uses settlement support fund within 8 days.
Requirement:
1. Calculate the amount to be deducted from other depository members.
2. Calculate interest and penalties D has to pay each member in the first 5 days and the next 3
days.
Said: Interest rate on using fund: 0.1%/day for the first 5 days; 0.15%/day for the next 3 days
(from the 6th day).